Investment banking in 2016: a bank-by-bank survival guide

Get your head down, the axe-man is swinging in investment banking once again. Most banks are cutting, some deeper than others, but throughout it all they will also be recruiting in 2016. This is what you need to know.

Bank of America Merrill Lynch

Direction of travel: BAML has already cut 200 sales and trading employees. Is this enough? Maybe. It also won’t be present in all business areas going forward. Thomas Montag, the head of its global banking and markets business, has already said that “the rules have changed” and it can’t be everywhere.

But…CEO Brian Moynihan has said that its trading business is now “a nice business, it covers the cost of capital”. In other words, it’s already at the size they need it to be.

View from the top: Moynihan is ready for the rebound in fixed income next year, not preparing to cut back: “There has been a lot of talk about re-positioning but there hasn’t been that much re-positioning in the overall set of firms. For those of us who have the capacity and talent, we should increase market share.”

Going up: In the race of M&A revenues, BAML has actually lost ground on the top three, but still has 23.1% of the market, according to Dealogic. But with most talking up a continuation of the M&A boom next year, and BAML notching up record revenues in this area, expect more hiring in M&A next year.

BAML claims to be at the right size for its sales and trading division, and having the people in place for any upswing in fixed income suggests cuts won’t be made here in a hurry.

Going down: Most ECM teams had a terrible third quarter, but BAML’s team had its worst three months since 2010, and overall its investment banking division has slipped down the rankings as a result.

BAML’s G10 credit team is the best in the business, according to rankings from research firm Coalition, but this means that the pressure is on. Credit has been performing badly, and makes up 60% of BAML’s revenues across FICC. Cuts may be slow, but there’s a need for things to change soon to stave off job cuts for long.

Barclays

Direction of travel: Jes Staley was not the salvation for Barclays investment bank many expected. Barclays was already making brutal cuts – 7,000 jobs are being eliminated at the investment bank through 2016 – but Staley is anticipated to inflict more pain.

Barclays is unveiling a new strategy in March 2016, so expect more details to emerge then, but already Barclays’ Asian and cash equities business has been targeted. There’s also a hiring freeze that is likely to be in place for the foreseeable future.

View from the top: Jes Staley sent an encouraging staff-wide memo shortly after he was confirmed as CEO, but since then his only public appearance has been to extend the hiring freeze “for a long time”.

Going up: In theory, Barclays shouldn’t be hiring anyone, but this is never the case even under a formal hiring freeze. Already, we know that at the very least it’s investing for the future and trying to retain junior investment bankers through accelerated promotions.

Tom King, the current investment banking CEO, has long held the view that deal originators with deep relationships with key clients, are worth holding on to, and – like every investment bank – will be making efforts to hire and retain these rainmakers. Specifically, Barclays has already announced plans to create two new advisory teams in Europe, focusing on cross-border structuring and activist investors.

Sinking: The assumption is that most banks will cut back in fixed income, but Barclays’ traditional strength in this area, combined with Staley’s courting of Blythe Masters to head its investment bank and the promotion of fixed income trader Mike Bagguley to COO, suggests that it could actually be an area of focus.

Citi

Direction of travel: This could always change, of course, but Citi is sticking to its guns. While other banks look to shed more capital intensive business areas, Citi thinks there’s still money in sales and trading.

View from the top: CEO Michael Corbat has remained schtum since the bank’s Q3 results, but Manolo Falco, head of Citi’s EMEA corporate and investment bank has made some reassuring noises to traders about “highly competitive terrain” in low capital investment banking.

“We definitely try to focus on the most attractive areas but at the end of the day, when you’re in 55 countries in this [EMEA] region…you have a big business that’s focused on the cap-heavy areas,” he said.

Going up: Do not expect big cuts across Citi’s fixed income business next year. John Gerspach, CFO of Citi, said that it had been “resizing the business actively for the last three years” and any future changes will be about “adjustments” not downsizing.

Sinking: Citi is actually making redundancies, and 2,000 jobs will go across the organisation. Traders and investment bankers will be targeted, but this is more the seasonal culling of underperformers instead of wholesale cuts. Instead, the bank is targeting back and middle office employees.

Credit Suisse

Direction of travel: Credit Suisse unveiled its new strategy in October and, on face value, it’s not good for its investment bank. 30% of jobs are going in London – largely support roles – and its decision to focus on ultra-high-net-worth individuals in wealth management means that anyone who can't feed into this in the investment bank is fast becoming a second-class citizen.

View from the top: CEO Tidjane Thiam had this to say: “The investment bank is there primarily to support our ambitions in the private banking and wealth management space.”

Going up: If Thiam is keen to play down the importance of the investment bank, others connected to the division are talking up growth.

Credit Suisse is in the market for 10 senior investment bankers in Europe next year, while Jim Amine, who runs the investment banking and capital markets division, has said that it will also hire for M&A and equity capital markets in 2016. Emerging markets is also likely to be an area of growth for the bank.

As part of Credit Suisse’s effort to tap ultra-high-net-worth individuals with an appetite for investment banking services, its Solutions Partners Group – which bridges the two divisions – should also be an area of growth.

Elsewhere, Credit Suisse will be adding 1,000 people for its wealth management unit next year and 100 risk management roles. Asia-Pacific will especially benefit as it tries to tap into the entrepreneurial millionaires in the region.

Sinking: Credit Suisse has been implicit on where the reductions will take place – the back office in London, prime services and some macro products. Expect cutting in its London operation to continue for at least the first part of 2016. So far, rates and FX have been targeted in the initial round of cuts, along with some job losses in its macro hedge fund sales unit.

Deutsche Bank

Direction of travel: Deutsche Bank’s journey to its 2020 strategy unveiled in October has been far from linear, but what was expected to be brutal is not has dire for its investment bank as first feared.

Deutsche is cutting 35,000 jobs across the organisation. However, 20,000 will go as it dumps assets like Postbank, 9,000 are from exiting non-core countries in South America, Europe and New Zealand and 6,000 are contractors. That leaves 9,000 to go out of the remaining 80,000 people.

View from the top: John Cryan is cutting costs, moving power away from front office bankers and clamping down on pay: “Many people still believe they should be paid entrepreneurial wages for turning up to work with a regular salary, a pension and probably a healthcare scheme and playing with other people’s money. We’ve just paid people too much across the board.”

Going up: Deutsche Bank is actually hiring 2,000 people amid all this carnage. Hot spots will be M&A advisory and ECM, credit solutions and prime brokerage. The US market will also be a key area of focus.

Sinking: Deutsche Bank will be cutting thousands of technologists in cheaper locations, it’ll be pulling out capital intensive areas like 'market making uncleared credit default swaps’, agency residential mortgage backed trading, its legacy rates business, and ‘high risk’ securitized trading as well as pulling back from flow credit. And anyone servicing its smaller investment banking clients is also at risk.

Goldman Sachs

Direction of travel: Goldman Sachs has not been immune to any declines in FICC trading revenue, but given CEO Lloyd Blankfein’s background in trading, there’s been no talk of exiting any business areas. FICC declines remain cyclical, not secular, he says, and it wants to remain positioned for the upturn. Across the firm, Goldman has added 3,000 people this year.

View from the top: Harvey Schwartz, CFO in the third quarter: “We will always look for additional opportunities to improve our FICC operations, however, we will also never lose sight of the tremendous value that we can bring to our FICC clients over the long term.”

Going up: Goldman is making efforts to retain its top M&A bankers, having gained market share and retained its number one slot this year, and has shaken up the ranks to keep its senior players happy. It’s also expanding its lending and investments business and will continue to add to its 9,000-strong team of engineers in technology.

Sinking: No wholesale changes predicted at Goldman, but it’s already undertaking its annual purge. 5% of total headcount will go across the organisation in early 2016, and underperformers will be targeted.

J.P. Morgan

Direction of travel: J.P. Morgan has not made any significant changes to its business model, nor has it announced any recent job cuts. It’s a top three player in every business area, aside from cash equities and even here has been hiring and revenues are heading up.

View from the top: CEO Jamie Dimon: "You need [big banks]. If you break them up, somebody else is going to do it and it will be [the] Chinese and if you think that's going to be good for the future of America, I beg to differ.''

Sinking: J.P. Morgan’s ECM bankers have struggled this year, but whether that means wholesale cuts is still uncertain. In the past, J.P. Morgan has cut heavily from its back office, but the lavish Christmas party bestowed on its Bournemouth employees suggests even here it’s showing some love.

Morgan Stanley

Direction of travel: Morgan Stanley is making deep cuts to its fixed income trading arm, with up to 25% of all jobs to go in this area. The bank has traditionally focused more on equities anyway, but even here it will be weeding out underperformers. Cuts are deep, but no businesses are being closed down.

View from the top: James Gorman in the build up to the FICC cuts: “It was a very unusual macro environment, the volatility in China was almost historic.”

Going up: Morgan Stanley has been making some big ticket hires for its wealth management unit, and will continue to do so. It’s also been hiring for M&A and will be in the market in order to maintain its top three position. Elsewhere, it will also hire for fixed income if the right person comes along.

Sinking: Where to start? 25% of total fixed income headcount will go. It’s targeting commodities traders, FX analytics, credit trading and senior employees. It’s also trimming in equities, but predominantly underperformers.